Barclays 2005 Annual Report Download - page 65

Barclays PLC
Annual Report 2005 63
2.8
Risk management
Loan impairment: potential credit risk loans
Non-performing loans and potential problem loans
The value of potential credit risk loans (PCRLs) at 31st December 2004 was
restated for the adoption of IFRS on 1st January 2005. This restatement has
not been applied to the numbers for 2004 and, as a consequence, these
numbers are not directly comparable with the current values. In addition,
due to enhanced modelling, PCRLs in the mortgage business have been
restated causing an increase of £172m at 31st December 2004. This
restatement, which has not been applied to periods prior to 2004, does not
reflect changes in credit quality but arises from the application of revised
methodology. In addition, this restatement does not reflect changes as a
result of the application of IAS 39 and as a result the 2004 and 2005 data,
included in the graphs below, is not directly comparable.
PCRLs comprise non-performing loans (NPLs) and potential problem
loans (PPLs). NPLs are loans where the customers have failed to meet
their commitments, either in part or in whole. PPLs are loans where
payment of principal and interest is up-to-date and the loans are
therefore fully performing, but where serious doubt exists as to the
ability of the borrowers to continue to comply with repayment terms
in the near future.
The US Securities and Exchange Commission (SEC) requires loans to be
classified, where applicable, as non-accrual, accruing past due 90 days
or more, ‘troubled debt restructurings’ and potential problem loans.
Whilst the Group’s risk procedures do not include the classification of
loans along these lines, historically balances have been reported based
on the SEC categories but with additional categories reported to reflect
the particular circumstances pertaining to the UK market.
With effect from 1st January 2005, the application of IAS 39 requires
interest to be recognised on the remaining balance of an impaired
financial asset (or a group of financial assets) at the effective interest rate
for that asset. As a result, interest is credited to the income statement in
relation to impaired loans, therefore these loans technically do not fall to
be classed as ‘non-accrual’ but are, nonetheless, non-performing. In order
to reflect this treatment under IAS 39, the Group has, in 2005, replaced
the ‘non-accrual’ category with one termed ‘Impaired loans’. Impaired
loans are non-performing loans where, in general, an impairment
allowance has been raised. This category may also include non-
performing loans which are fully collateralised or where the indebtedness
has already been written down to the expected realisable value.
The amounts are shown before deduction of the value of security
held, is impairment allowances (for 2005) and provisions or interest
suspense (2004 and earlier), all of which might reduce the impact of
an eventual loss, should it occur.
Since 31st December 2004, NPL balances, excluding Absa, increased
by 10% (including Absa, the increase was 27%). This resulted mainly
from a rise in balances in the UK retail portfolios with NPL balances in
the wholesale and corporate portfolios decreasing modestly.
PPLs, excluding Absa, decreased 5% (including Absa, the increase
was 16%). Retail portfolios PPL balances increased 38%, but this was
more than offset by a 24% decline in PPL balances in wholesale and
corporate portfolios.
PCRL balances increased 25% to £6,139m (31st December 2004:
£4,913m). Excluding Absa balances of £901m this represented an increase
of 7% which occurred mainly in the UK unsecured retail portfolios.
Non-performing loans and potential problem loans
(See also Table 17 on page 86 and Table 18 on page 87).
Non-performing loans and potential problem loans as a percentage
of Loans and Advances
UK GAAP IFRS
2001 2002 2003 2004(b) 2005
0.8
0.7 0.7
0.3
0.4
1.0
0.8
0.6
0.4
0.2
0
PPLs/Loans and Advances Ratio %
2001 2002 2003 2005
2.5 2.7
2.3
1.7
1.8
3.0
2.5
2.0
1.5
1.0
0.5
0
NPLs/Loans and Advances Ratio %
UK GAAP IFRS
2004(b)
2001 2002 20052003
1,306
1,162
1,327
929
798
UK
Non-UK
Potential problem loans by location(a) £m
1,600
1,400
1,200
1,000
800
600
400
200
0
UK GAAP IFRS
2004(b)
2001 2002 20052004(b) 2003
3,967
4,668 4,305
5,210
4,115
0UK
Non-UK
Non-performing loans by location(a) £m
6,000
5,000
4,000
3,000
2,000
1,000
UK GAAP IFRS
Note
(a) In 2001-2003 non-performing loans and potential problem loans were
disclosed based on the location of the booking office. In 2004-2005 they were
disclosed by location of customers.
(b) Does not reflect the application of IAS 32, IAS 39 and IFRS 4 which became
effective from 1st January 2005. Further explanation is provided on page 134.